DOES EVERYBODY LOVE RAYMOND?
With greater frequency, behavioral economists are pointing out oddities that raise questions about how “rational” people really are. Interdependent preferences have been used to explain a variety of these anomalies. It’s becoming clear, for example, that an individual’s rank in the income structure is an important consideration in how that individual values a given level of income. Preference interdependence has implications for wages, tax policy, and even the grades we hand out. Students are concerned both with the grade they receive and their relative standing in the class. To explore income interdependence, Andrew Oswald of the University of Warwick and Daniel Zizzo of Oxford University designed an experiment to see if people dislike other people’s income enough to give up some of their own money to reduce it. At the beginning of the experiment, four players were given money and told they could bet any portion of it. After the betting round, two of the subjects received a “gift” of
